Fitch Affirms Standard Pacific's IDR at 'B-'; Outlook Stable

2008-08-23 00:49:03 -

- Fitch Ratings has affirmed and removed Standard Pacific Corp.'s (NYSE:SPF) Issuer Default (IDR) and outstanding debt ratings from Rating Watch Negative as follows:

--IDR at 'B-';

--Secured borrowings under bank revolving credit facility at 'BB-/RR1';

--Unsecured borrowings under bank revolving credit facility at 'B-/RR4';

--Senior unsecured at 'B-/RR4';

--Senior subordinated debt at 'CCC/RR6'.

Standard Pacific's Outlook is Stable.

Fitch's Recovery Rating (RR) of '1' on the secured advances under SPF's revolving credit facility indicates outstanding (90%-100%) recovery prospects for holders of this debt issue. The 'RR4' on SPF's unsecured notes and the unsecured advances under its revolving credit facility indicate average (30%-50%) recovery prospects for holders of these debt issues. SPF's exposure to claims made pursuant to performance bonds and joint venture (JV) debt and the possibility that a portion of these contingent liabilities would have a claim against the company's assets were considered in determining the recovery for the unsecured debt holders. The 'RR6' on SPF's senior subordinated notes indicate poor recovery prospects (0%-10%) in a default scenario. Fitch applied a liquidation value analysis for these RRs.

The ratings reflect the current difficult U.S. housing environment (especially in SPF's key California and Florida markets) and Fitch's expectation that housing activity will continue to be challenging during the balance of calendar 2008 and into 2009. The ratings also reflect current and expected negative trends in SPF's operating margins and meaningful deterioration in credit metrics (particularly interest coverage, debt/EBITDA ratios and tangible net worth).

The Stable Outlook reflects SPF's strengthened balance sheet and improved liquidity position resulting from the equity investment made by MatlinPatterson. On June 27, 2008, SPF closed the first phase of the equity transaction, wherein MatlinPatterson purchased $381 million of a new series of senior convertible preferred stock representing 125 million shares of common stock with a conversion price of $3.05 per share. Additionally, MatlinPatterson exchanged $128.5 million of senior and subordinated debt for warrants to acquire preferred stock representing $89.4 million shares of common stock at an exercise price of $4.10 per share. As a result of the transaction, SPF reduced consolidated unsecured debt by $156 million and ended the second quarter with cash of $572 million. SPF has also commenced a $152.5 million rights offering for 50 million shares (second phase), which will further reduce the company's leverage and increase its cash balance.

SPF has also amended its bank credit facilities. As part of the amendment, the commitments under the revolving credit facility were reduced from $500 million to $395 million and SPF paid down its revolver balance from $90 million to $55 million and its Term Loan A balance from $100 million to $65 million. Additionally, certain financial covenants, including leverage, interest coverage and tangible net worth requirements, were eliminated. The amended credit facilities contain a new liquidity test requiring SPF to maintain either a minimum ratio of cash flow from operations to interest incurred or a minimum liquidity reserve.

SPF's improved liquidity position, including a less restrictive covenant structure under its bank credit facilities, allows the company to fund working capital needs and meet upcoming debt maturities, including required quarterly amortizations, during second half-2008 (2H'08) and 1H'09. SPF has $103.5 million and $125 million of unsecured notes coming due in October, 2008 and April, 2009, respectively.

SPF and its JV partners generally provide credit enhancements in connection with JV borrowings in the form of loan-to-value maintenance agreements. At June 30, 2008, approximately $275.2 million of its unconsolidated JV borrowings were subject to these credit enhancements. SPF is solely responsible for $27.8 million and is jointly and severally responsible (with its partners) for $247.4 million of debt. During the six months ended June 30, 2008, SPF made $16.5 million of loan remargin payments related to two joint ventures. Additionally, SPF unwound three joint ventures for total cash consideration of about $83 million and the assumption of $47.7 million of debt during the second quarter. Subsequent to June 30, 2008, SPF exited two JVs with total assets of $47.8 million and debt aggregating $29.7 million for a combined payment of $3.3 million. While SPF has reduced its joint venture exposure, the company's liquidity may be negatively impacted by potential re-margining contributions as well as cash outflow from unwinding certain joint ventures.

Future ratings and the direction of SPF's Outlook will be influenced by broad housing market trends as well as company-specific activity, such as land and development spending, general inventory levels, speculative inventory activity (including the impact of high cancellation rates on such activity), gross and net new order activity, debt levels and free cash flow trends and uses.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings
Robert Curran, 212-908-0515 (New York)
Robert Rulla, 312-606-2311 (Chicago)
Cindy Stoller, 212-908-0526 (Media Relations, New York)